5 Unforeseen Expenses that Ruin Retirement
Planning your retirement budget
Wise retirement planning begins long before you give your boss two weeks' notice about your last day on the job. It involves analyzing current expenses, anticipating future outlays and making sure you will have enough income to cover them all. But beware of certain expenses that may thwart your best-laid plans.
On a typical retirement budget work sheet, you'll see lines for "miscellaneous" or "other" items, probably somewhere near the bottom. It's easy to gloss over this section once you've assessed your income needs for such basics as housing and health care. But when you get down to the details of filling in the blanks, these add-ons can account for a significant portion of your retirement spending.
Consider these five situations that might put a strain on your retirement budget if you're not prepared.
Taking up an expensive hobby
Say your retirement dream includes racing yachts, collecting antique dolls or starting a goat farm to make artisan cheese. Even if your only real passion is playing golf, your retirement plan should include a way to pay for it.
Harriet Veenker, a Certified Financial Planner in Aitkin, Minn., says it's especially easy for spending on hobbies and recreation to get out of hand during the early retirement years.
"Most new retirees tend to overspend in their first year or two because there is so much out there to do," Veenker says. "Some of the pension plans aren't helpful, because they'll let you take more out in the first five years -- because that's when you're really busy."
Veenker's neighbor, a teacher in the Elk River, Minn., teachers' pension program, elected to take bigger payouts at the onset of retirement. "It is a decision that she has regretted, since the income was cut back after five years," says Veenker.
Make sure you have a spending plan that will fit your lifestyle and allow your retirement income to last for the long haul.
Upgrading your home
Consider how much room you'll need in your retirement budget for home improvements --whether it's renovating your kitchen or bath with universal-design features, putting a master suite on the first floor or replacing an old roof.
Melissa Motz, a Certified Financial Planner in Harleysville, Pa., finds that her clients often underestimate what they will spend on home improvements during retirement. But while they may insist they're done with renovating, their plans often change later on.
"Just because you're retired doesn't mean you're all of a sudden going to stop wanting things," Motz says.
The one thing you shouldn't count on, says Veenker, is taking on a major debt -- like a home equity line of credit or second mortgage -- to finance the upgrade. She says it's better to think ahead about what needs are likely to come up and start saving for them now.
"If you've got a roof that's going to last 25 years, you divide the cost of the roof by 25 and that tells you what amount you have to save per year to be ready for the next roof," Veenker says.
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